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PERSPECTIVE
Should You Outsource E-Commerce Fulfillment?
E-tailers are experiencing increasing pressure to sell more products online, move a larger volume of small packages, and meet rising customer expectations. Can outsourcing help? Here's what to consider.
By Elise Chow
Ask any three people to define e-commerce, and you'll probably end up with three very disparate answers.
Why? Some companies think they're conducting e-commerce simply because they have e-mail. Some believe that the mere presence of a Web site constitutes e-commerce. The companies that are truly engaged in e-business use sophisticated Internet technologies to unify all of their business procedures, internal and external -- including their e-commerce activities.
Furthermore, e-commerce must encompass a customer-centric approach when implementing a back-end order fulfillment system. It's not enough to simply be an order taker. True e-merchants must provide pre- and post-sale customer support that's integrated with automated order fulfillment and returns management.
According to Forrester Research, 85 percent of companies with e-commerce sites have no automated, real-time connection with any of their existing business applications. A November 1999 study by Jupiter Communications of 125 top sites in five categories found that 46 percent of those sites took five or more days to respond to a request, never responded, or didn't post an e-mail address on the site for customer inquiry. Many online businesses have not been able to have their online customer service keep pace with the actual growth of e-business and Internet usage.
Consequently, the key to success in e-business isn't technology-centric, but rather customer-centric. Businesses must resolve the following issues:
- Are customers being recognized when they show up on the virtual doorstep?
- Is the quality of service the same for the Web customer as for the pedestrian customer?
With approximately 64 million adults using the Internet, it's predicted that e-commerce spending will top US$3 trillion by 2003. All major analyst firms agree that the demand for order fulfillment solutions will reshape the existing e-commerce landscape as e-tailers work feverishly to provide a timely and accurate fulfillment capability that's integrated with quality pre- and post-sale customer service. Since the Internet is expanding at a tremendous rate, and e-commerce businesses are experiencing extraordinary increases in online shopping, it's critical to ensure that consumers have a satisfying online experience. The ramifications of poor customer service can be detrimental in a global retail marketplace where the competition is just a mouse-click away.
Today, many Internet enterprises outsource fulfillment and customer service operations as a strategic imperative to help drive business objectives. A successful working relationship with a third-party provider lets businesses focus on their core competencies, such as marketing services, optimizing productivity, increasing revenue, and controlling costs.
Why outsource?
According to a report from Forrester Research, "Mastering Commerce Logistics," demand for order fulfillment solutions will evolve as logistics suppliers turn to serving the small-package, individual-oriented needs of commerce site operators. As online sales move past the experimental phase, several factors combine to put new pressures on order fulfillment systems. These include an expanded selection of products sold online, the need to move a large volume of small parcels, and rising customer expectations.
Forrester Research also advises that most mid-sized e-merchants (average of 1,000 orders per day) should outsource their fulfillment to gain economies of scale. Outsourcers have the ability to share warehouse space and resources among online merchants, allowing orders to be fulfilled for less than 10 percent of revenue. Sophisticated order fulfillment companies can integrate a merchant's inventory and planning systems, letting the merchant retain control of the service experience.
From start-up companies to established businesses venturing onto the Web, e-merchants are realizing that outsourcing online fulfillment requirements is critical to staying competitive. In addition, outsourcing lets companies focus on their core competencies, increasing speed to market.
Choose the right partner
Retailers find that it's relatively easy to distribute products in bulk through a wholesale, retailer, or distribution channel as compared to e-commerce distribution. However, difficulties can emerge when a company has many individual products that require consumer-to-home distribution, inventory control, and customer support.
If you're considering outsourcing you order fulfillment systems, look for the following:
1. A company that's dedicated to protecting the merchant's brand name -- It's crucial that you launch and sustain successful e-commerce initiatives by establishing tightly integrated, exceptional fulfillment and customer service capabilities. Equally important is the process of enhancing the customer's buying experience and ensuring that your brand is properly represented.
2. An outsourced partner that understands e-commerce market opportunities and provides a complete back-end solution -- Select a vendor that provides a full spectrum of management, order processing, fulfillment, distribution, and IS services to its customers, and make sure the vendor offers reliable back-end technology.
3. A management team with broad experience -- The people involved should have experience in inventory management, logistics, information systems, and customer service.
4. The ability to move goods effectively and efficiently -- Make sure the third party is one that can anticipate the needs of current and future consumers and has the capabilities to fulfill those customers' needs.
Real-world benefits
Since many small and middle-market e-merchants don't have sufficient volume to build a cost-effective infrastructure, they can team with an outsource partner that offers a cost-efficient, accurate, and timely fulfillment process coupled with quality post-sale customer service. This ensures that you meet or exceed cyber-shoppers' expectations of convenience, on-time delivery, status updates, personalization, and exceptional service.
New Basics is an example of an e-merchant that has experienced great success by outsourcing its fulfillment system. New Basics distributes personal beauty care products through retail channels and the Web. It needed a partner that could support wholesale shipments to retail stores, as well as single orders directly to customers. New Basics also needed to provide a single point of contact for customer questions and concerns. As a start-up company focused on marketing and manufacturing, New Basics didn't want to develop in-house fulfillment and customer service operations.
New Basics partnered with a fulfillment and customer service solution provider to outsource its back-end processes. The companies worked together to develop a plan that would integrate and manage a customized fulfillment and customer support program, including integrating the e-commerce sales engine with the vendor, overseeing the training of customer service representatives on the features and benefits of New Basics' new product lines, and having the vendor provide phone and e-mail sales and post-sales support.
"After analyzing the process, we realized we saved an enormous amount of time and money by eliminating our need to develop fulfillment and customer service functions in-house," says Dina Chu, president and CEO of New Basics. "The most important part for us was that the order fulfillment vendor was able to maintain our brand image by providing exceptional customer service, allowing us to focus on marketing and developing next-generation products."
As e-commerce evolves, analysts predict that a growing number of e-tailers will discover that outsourcing is the most efficient and effective way to retain customers and keep them satisfied. To become a leading online retailer, you must first address your back-end capabilities. The e-commerce players that don't embrace this all-encompassing e-business philosophy will likely be "e-liminated" from the marketplace.
Elise Chow is president and founder of Fulfillment Plus, Inc., of Waltham, Massachusetts, a back-end infrastructure service company that provides a fully integrated suite of customer services, fulfillment, and logistical offerings to e-businesses. Keyword Tags: B2C (Business-to-Consumer), Customer Service, E-Business Management, E-Commerce, Fulfillment Plus, Internet Operations, Logistics, New Basics, Service, Supply Chain Management (SCM), Web Operations
ADVISORAMA If it isn't broken, fix it till it is.
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